The UK hotel transactions market is displaying a return to liquidity, with debt increasingly available although deals remain largely granular, according to a panel of hospitality investors speaking at the Annual Hospitality Conference (AHC) in Manchester.
Assessing the UK outlook, Peter Werhahn, managing director, Blackstone, said: “We are relatively bullish driven by our recent portfolio selection. We are seeing resilient leisure demand across all our estate.” Funds managed by Blackstone acquired Village Hotels last year, comprising at the time 33 leisure assets in cities across the UK. In praise of the deal, Werhahn said that part of its appeal had been the “150,000 fitness members across the entire estate [generating stable, recurring income]”, creating a dynamic environment for end-users and powering aspects such as food and beverage (F&B) expenditure. One outcome is that Village has become “a very strong conversion brand”, he added, with the business always looking for new sites in the UK as long as they offered an ability to achieve “vacant possession”. He stressed that while Blackstone was famed for “complex deals” including transactions requiring access to significant amounts of capital, it could also be agile on “smaller transactions”.
Portfolio deals
In a presentation preceding the panel discussion, moderator Carine Bonnejean, managing director hotels at Christie & Co, showed that this year’s European transactions market is composed of more granular deals, compared with last year’s trend for large portfolio transactions.
However, Jacob Rasin, senior vice president transactions, Pandox, confirmed that the Nordic owner was in the midst of a major M&A deal focusing on the UK and Ireland. In July, Pandox made a €1.4 billion bid to take over Dalata Hotels, which comprises a portfolio of 56 hotel businesses, including 31 freehold and long leasehold properties, 22 leasehold hotels and three managed hotels in Ireland, the UK, Germany and the Netherlands. The deal is expected to see Scandic Hotels Group come in as operator of the portfolio, enabling the northern European specialist to enter new markets and deepen its partnership with Pandox.
Rasin called the Dalata deal a “once in a decade opportunity”, describing the territories of the UK and Ireland as “markets we really like, where we are already on the ground operating and where the headwinds are not news to us”. He noted that Pandox has a history of acting in moments of market uncertainty to unlock great deals, adding: “Historically, our big deals came in 2017 post-Brexit, in 2022 post-Covid, and now, post Trump’s Liberation Day tariffs.” By being “first movers on signs of recovery”, he said, there was often an opportunity to take advantage of “fewer buyers, and more motivated sellers”.
Market dislocations
JJ Lenhart, managing director of Boston-based investment firm The Baupost Group, also described a “choppy environment” which was nevertheless fostering interesting opportunities. Last December, Baupost and KKR acquired 33 Marriott hotels across the UK from the Abu Dhabi Investment Authority (ADIA) in a landmark deal. Lenhart said that the business had focused on converting the portfolio to franchise agreements, and executing value add capex, while activating a longer-term strategy to “trim the non-core long tail of the portfolio”. He said: “We have been looking at selective sales, and have been surprised by investors coming to us with specific assets that they want to buy.” He added: “Debt markets are open, and when we are looking to sell, buyers are able to source financing without too much difficulty.” He also noted, in a separate trend, that some owners “that hung on [through] Covid are now looking to exit”.
Saurabh Chawla, vice president transactions, Westmont Hospitality, also summarised the UK market as an environment of mixed opportunities. “The UK is on the agenda, but it is not top of the agenda,” he said. He described “different countries across Europe” as experiencing “peaks and troughs”, with countries like Spain and Portugal still enjoying a “peak”. He added: “Germany has been through the bottom, and we are continuing to invest there. The UK is just coming off its peak, so it’s a good time both to sell and get into it again.” He said that in comparison, Westmont had earmarked the Netherlands as a “sell market”. He concluded: “The Netherlands is going through a steep decline at the moment due to various fiscal policies.”